Sunday Culture – Silver Magic

A few songs from a musician that never gained the fame he deserved, except in South Africa.

I only found out about him because I started to watch a movie telling about his life. Here is a trailer:

Sunday Culture

Fifth Element Diva song – full version. 

SINGING – EVGENIA LAGUNA.

Temptation – Willpower

I just read a HBR blog on how to grow a bit stronger by using your temptations to your advantage. Great to read and makes you think a bit more on how to improve yourself and have a bit more willpower. Original post is behind the link, here I just list the most interesting sentences of the text.

How to Use Temptation to Strengthen Your Willpower
by Peter Bregman, Harvard Business Review  |  12:00 PM March 27, 2013
Link to original post

Think about any good movie you've seen recently. I bet the first few minutes introduced a problem and the rest of the movie was devoted to the tension of a protagonist who wants something, usually with some urgency, that she does not get. Then, it was only in the last few minutes that the tension was resolved and she achieved whatever it was she was seeking. 

The reason good movies follow that formula is that there is no way to keep an audience engaged once that tension is dissipated. 

That's because ninety-five percent of our pleasure is in that tension. It's the tension of suspense, of anticipation, and it feels at least as good and lasts much longer than the resolution. In fact, we only care about the resolution because of the anticipation.

But consider how much time I spend anticipating the dinner, compared to eating it.

This, it turns out, is the key to strengthening our willpower. Willpower is mastering the tension of not getting what we want in the moment. How much easier would it be if, instead of withstanding, we could actually enjoy?

 Next time you feel tempted by something, take a moment to feel the pleasure of that tension. Don't think of it as temptation; feel it as anticipation. 

Indulge yourself fully — think about what you want and feel the emotions of wanting it. Then realize that as soon as you give in to the temptation, as soon as you release the tension, all the pleasure will be gone. 

We know from research that people who delay their gratification succeed more on a number of different criteria — relationships, finances, achievements. 

I'd like to add one more: Pleasure.

Growing Interest on Mexico

Lately I have started to be more and more interested about Mexico due to its current situation as a strongly developing country with great future potential and a great location to the USA's markets... Among many other reasons. Therefore I'm slowly trying to gain better understanding of Mexico's situation and as an investor of course about Mexican companies as investment targets. I will have to start learning Spanish to get a better inside view and also really be able to consider the possibility if I could move there in a few years. Which I'd be happy to do if I'm able find a job for myself. Moving outside Europe to a totally new place would be an amazing life experience.

Now listing short pieces from a text I recently read in the pages of the International Monetary Fund concerning Mexico.

The Comeback
FINANCE & DEVELOPMENT, March 2013, Vol. 50, No. 1
Herman Kamil and Jeremy Zook

•Over the past seven years, Mexican manufacturing exports rose from about 11 percent of the U.S. import market to an all-time high of 14.4 percent—at first elbowing out such competitors as Japan and Canada, but in recent years gaining market share at the expense of China. Between 2005 and 2010, both Mexico and China gained market share in the United States. Since 2010, however, Mexico’s gains in the U.S. import market coincided with a decline in China’s market participation.­                                              

•Mexico’s rebound has been driven primarily by exports of electronics, telecommunications, and transportation equipment. 

 •Only a handful of industries lost market share, including electrical equipment (still a major sector, accounting for 14 percent of Mexican exports) and apparel.­

 •Mexico’s comeback in the U.S. market reflects both its improved competitiveness and developments that are making Chinese exports relatively more expensive. Most important among these developments are a narrowing gap in labor costs between Mexico and China, increased productivity gains in Mexico, and rising transoceanic shipping costs.

•In addition, strong productivity increases underpinned by significant investment in the manufacturing sector in Mexico have helped lower the cost of labor per unit of output and increase the competitiveness of manufacturing production.

•Mexico has also benefited mightily from being close to the United States. The price of oil increased from $25 a barrel in the early 2000s to more than $100 in February 2013, which substantially raised transoceanic freight costs. This proximity has given Mexico a competitive edge over China, particularly when it comes to trendy time-sensitive goods and heavy and bulky items.­

•According to the 2011 U.S. Manufacturing-Outsourcing Cost Index (AlixPartners, 2011), goods produced in Mexico had the lowest landed costs (that is, their price at a California port) for U.S. importers in 2010 of all key low-cost outsourcing countries.  

•Mexico’s strong commitment to the protection of proprietary technologies has also helped it attract foreign direct investment, with its beneficial impact on efficiency. Mexico has a strong reputation for protecting international intellectual property, patent, and trademark rights and is a party to several international treaties, including the World Intellectual Property Organization Copyright Treaty.

•Mexico’s trade agreement network is one of the world’s largest; it has free trade or preferential trade agreements with 44 countries and has shown a strong commitment to avoiding the use of trade restrictions and ensuring unrestricted access to markets and intermediate inputs to companies operating in Mexico. Moreover, Mexico has signed international standards and quality agreements that facilitate the participation of local manufacturing companies in global supply chains, particularly in the automotive and aerospace industries.­ 

•A number of the factors that have contributed to Mexico’s increased competitiveness and its recovery of U.S. market share are likely to be long lasting—or structural, as economists say. These include the locational advantage, improved unit labor costs from enhanced manufacturing productivity and increased labor participation, and trade openness that appear to have underpinned Mexico’s improved competitiveness in the U.S. market in recent years.  

•Manufacturing in Mexico was hit hard by China’s rise on the global stage at the beginning of the past decade; but today, as some of China’s cost advantage has eroded, Mexico’s manufacturing sector is among the best positioned to benefit from the changing global landscape.­

If you wish to read more, please click here for the original text. 

The Seven Immutable Laws of Investing

I read an interesting text on laws of investing by a long term value investor BARRY RITHOLTZ. If you have been already investing for a long time this text might not offer anything new to you, but for everyone else it should offer some interesting reading. Original post can be found HERE containing plenty of explanations and graphs to support this text. Below you can read a shorter version

1. Always insist on a margin of safety

2. This time is never different

3. Be patient and wait for the fat pitch

4. Be contrarian

5. Risk is the permanent loss of capital, never a number

6. Be leery of leverage

7. Never invest in something you don’t understand

Sounds simple enough doesn't it?

But implementing them all will most likely take you a lifetime.

Now for a bit of information on each of the laws.

1. Always insist on a margin of safety

The concept of a margin of safety is probably one of the most important things Benjamin Graham taught us as value investors.

The valuation of the company you are buying is probably the most important factor that will determine your future returns.

You always want to make sure that you do not buy an investment at fair value but below fair value so that you have a margin of safety should something go wrong with the company.

And because valuation is an imprecise science a margin of safety gives you the added security in case you did something wrong in your calculations.

For me a margin of safety means researching only companies that are valued a lot cheaper than the market.

I will be the first to admit that these companies are not perfect, that's the reason why they are cheap. But numerous research studies have shown that just randomly buying a portfolio of the most undervalued companies will ensure that you beat the market over long periods of time.

What I have done over the past 20 years is look at a lot of research studies and combined the factors that led to the companies outperforming the market. I've combined all these factors into a model that I used to select and evaluate the investments I make.

This has led to me substantially outperforming the market over long periods of time.

2. This time is never different

James mentioned that Sir John Templeton defined "this time is different" as the four most dangerous words in investment.

Whenever you hear talk of a new era (remember “clicks not bricks”, in the Internet bubble) you should make sure that you start running in the other direction.

3. Be patient and wait for the fat pitch

Patience is a very important trait of a value investor. When investing patience is required not only while you are waiting for the companies you bought to be re-valued but also because you have to be patient and wait for an undervalued opportunity to appear before investing.

In times like the Internet bubble it may be very frustrating as you may be sitting on cash, searching for an undervalued investment, while the market and the returns of your friends are going through the roof.

Well you know how that turned out; investor did well for a year or two but thereafter lost everything when the bubble deflated.

4. Be contrarian

Value investors tend to naturally act contrary to the popular investment trends because trendy companies offer no margin of safety.

When others are selling you are normally buying and when others are buying and talking about stocks all the time you are most likely selling or have sold already.

This is not easy to do. Humans are by nature herd animals and are much more comfortable doing the same thing as everybody else than standing on the side line either watching or doing the exact opposite to what all your friends are doing.

5. Risk is the permanent loss of capital, never a number

With this law James refers to institutional investors who would like to define risk as a single number. Think of all the terms like beta, standard deviation and value at risk (VaR) you have heard before.

This is however not the case. Risk is a multifaceted idea that cannot be reduced to a single number.

James then names three risks that can permanently impair your capital:

1) Valuation risk – you pay too much for an asset;

2) Fundamental risk – there are underlying problems with the asset you have bought (for example a value trap); and

3) Financing risk – leverage.

6. Be leery of leverage

Debt is a dangerous animal. And adding debt to a bad investment can never make it better.

Also simply adding debt to a low return investment doesn't transform it into a good return generator.

As you know value investing requires patience and if you have invested with debt the repayment of the debt may come at exactly the time when it will be most critical for you to hold onto your investments.

Being forced to sell may turn an undervalued investment (that is now even more undervalued because of a market decline) into a permanent loss of capital because you are forced to sell.

7. Never invest in something you don’t understand

This may look like a law that is far too simple to be included in the timeless laws of investing but I can assure you it isn't.

I cannot remember the number of times I have advised friends to simply say no when their bank offers them some structured product that would give them a slightly higher return than a normal savings account  but which they do not understand.

It is most likely the person selling you the product doesn't understand it either.

Investment is inherently a very simple concept.

Value investment for example is: you buy undervalued companies, holding until the undervaluation is gone at which time you sell.

It is of course a lot more difficult to implement but the concept itself is very, very simple.

The other thing you can be sure of is that the more complex the product is the higher the fees the party selling it is earning. A lot of times complexity is added simply to hide or increase the fees that can be charged.

It really is as simple as that, if you do not understand it then don't invest.